On a low volume day, ES meltdowns on friday. We are not entirely sure that this price action really is defining a new price trend as yet. We would like to see more participation and another test and failure ot 1357 before we consider 1325 as the new target.

Our July Portfolio of Fx trades are shared here: Performance

Join as we look at the following charts and setups from bonds, commodities, forex and equities to draw up our weekly analysis.

But before we get in to charts, quick recap on ECB historic rate cut and the analysis behind it:
The rate cuts: As demonstrated by the chart below, the deposit rate has been the de facto key interest rate of the ECB since autumn 2008 insofar as it has dominated the overnight money market rate Eonia. With the deposit rate unanimously (Buba agreed!) lowered from 0.25% to 0.0%, the ECB de facto implemented for the first time a zero interest rate policy (ZIRP). The ECB further decided to cut the refi rate as expected to 0.75% from 1.0%. ECB president Draghi justified the rate cuts because “risks to the growth outlook have materialized” which should dampen inflation in the future. We don’t buy this argument. The euro-zone recently fell back into recession not due to high ECB rates but because of the uncertainty stemming from the sovereign debt crisis. This can’t be cured by lower ECB rates. The fact that the ECB nevertheless cut rates shows how determined the bank is to use all of its weapons. Obviously, there are not many taboos left.

Non-standard measures: ECB president Draghi did not announce new non-standard measures after the ECB had eased collateral requirements only recently. According to Draghi, the Council did not even discuss any non-standard measures. However, Draghi said that the ECB may revisit the collateral framework, but there will be no decision in the shortterm because it is highly complicated. In the end, these comments fit our view that the ECB will ease collateral rules further if the sovereign debt crisis were to escalate further in the months ahead. We think that easing collateral rules would be the first choice of the ECB. But the ECB would also not abstain from further long-term tenders if worse comes to worst. Summit comments: ECB president Draghi explicitly hailed last week’s controversial summit results although the European leaders decided to ease the conditions attached to the ESM support measures which should discourage reform efforts in these countries. This is a further sign that the ECB has moved closer to the politicians.

Please join us now in looking at the technical charts and setups

ES volume hole at 1370/80 warded off a potential short squeeze of immense magnitude. We warned our subs about this hold all through the week and with NFP coming around the week, a small miss was enough for some strong reactions as ES corretec to 1342. We took our last short out at 1344 as indicated in the trade room and on our trade sheet. But has the daily trend changed with the fall on friday? What is critical to note is that ES is now below 100,2 BB mid band at 1356. It is also below its 100 DMA at 1357 which will now start to act as a resistance zone and hence stops to be above that level.

ES weekly stands at its weekly 25,2 mid line at 1352 and we look for directional baises over the next few weeks to see if we can do a closing over mid 25,2 line.

Dollar hits weekly upper 25,2 line at 83.560 and we should now be careful being long the dollar on a weekly basis.

Right where we wanted to the dollar index to be on the daily as it crashes into resistance of 100,2 upper and 25,2 upper. While this should cap dollar but we have seen instances of spikes through this zone. If we see a spike a close above 84, it is a signal to go short AUD,CAD,EUR.

Forex Pairs

CADJPY ends right at the 50 DMA at 78.13 and below the 55 DMA at 78.5 and the 200 DMA at 78.04. A break here will mean 77.5 which is the mid line of 25,2 BB which is what I would prefer. Stops shoudl be quite big under the 200 DMA at 78 and we could see quite a large flushing.

EURUSD stands at the 100,2 BB lower line at 1.2284 and ends above 1.2280. This has been a sharp fall since Draghi cut the rates.The Falcon caught this wave down at 1.2526 and has been -1 since then making over 200 pips.

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1. The July Live Trade Sheet
2. The July Live Trade Room
3. The Charts corner
4. C3X Performance FX portfolio
5. The Bond auction schedule can be found here: Bond schedule
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Capital3x Indicator updates

The Gladiator has given over 20 handles since 2 July 2012 (net of fakes assuming a stop out of 3 to 4 handles). Allowing an entry after a ret from the point of Gladiator crossing makes the reward even more rewarding.

The Falcon EURJPY was -1 at 100.3 and since then has been -1 to levels under 98 making over 200 pips. Given Falcon EURJPY enjoys a privileged information source from EU bunds and EU Schatz both of which have been on a rocket as shown above.

The Falcon EURUSD went -1 at 1.2526 much before ECB press conference. The Falcon EU was deriving values from the bond markets which often are far better in judging what a market might do post CB action. Before ECB announced its decision, there were many who would back that a cut would fuel a EU rally which never happened. The Falcon was pretty clear about that.

The Falcon USDCAD hit +1 at 1.0147 and since then easily gave the 50 pips to 1.02 levels which was hit on Friday.

The Capital3x bond market indicators have done their job once again pre and post NFP.